Beruflich Dokumente
Kultur Dokumente
Equity funds invest in shares and these investments can be held as long as possible
(based on the funds strategy). Debt funds invest in fixed income securities like bonds,
deposits etc., and these investments have fixed tenure (varying time-frames). The primary
securities.
So, there are various types of Debt Mutual Funds that invest in various fixed income
securities of different time horizons. (Time-horizon is from Funds view-point and not
Where do these funds invest? These funds invest in highly liquid money
these funds could be as short as a day. (There are several money market
What are the Expected Returns? Investment Returns from Liquid funds
can be slightly better than Savings Bank Account. Returns on these funds tend
Who should invest in Liquid funds? If you want to park your surplus cash
for very short-periods say 1 to 3 months, opt for these funds. Do not invest in
Liquid Funds for a longer period as these offer low single-digit returns at best.
Examples : Axis Liquid Fund & HDFC Liquid Fund etc.,
Where do these funds invest? These funds are also known as Liquid plus
short term debt securities with a small portion in longer term debt
Returns These funds can generate better returns than Liquid Funds.
Suitable for investors who are willing to marginally increase their risk.
which needs to be invested for say 3 to 9 months, you can consider investing
in these funds.
Income Funds
Where do these funds invest? They invest a major portion in various debt
money market instruments of various maturities and issuers. These funds can
further be classified as, Gilt Funds, Long-term Income Funds and Dynamic
Bond Funds. Gilt Funds invest in government securities of medium and long
Funds invest in debt securities of different maturity profiles. These funds are
actively managed and the portfolio varies dynamically according to the
Returns You can expect better returns on these funds when compared with
Short term or Liquid funds. But you should be ready to take higher risk. These
funds generally tend to give better returns when the interest rates have peaked
and when the interest rate cycle is in downward trend. Most of the gilt funds
or income funds have given double digit returns over the last 1 to 2 years.
Who can invest? These funds are suitable for investors who are willing to
take a relatively higher risk and have longer investment horizon (say 1 to 3
years). You can consider Gilt funds in a falling interest rate scenario. Invest
in a Dynamic Income fund if you want to gain from both rising and falling
interest rate scenarios. But, dynamic funds can have high interest rate risk
Examples : L&T Gilt Fund, SBI Magnum Gilt, HDFC High Interest
Dynamic Fund, IDFC Dynamic Bond Fund, TATA Dynamic Bond Fund
etc.,
Where do these funds invest? These funds invest in a mix of Debt and
portion ensures stability, safety and consistency, while the equity instruments
in the portfolio boost the returns. Kindly note that MIPs are market-linked
Returns Good MIPs can give you better returns than bank fixed deposits.
Infact, some of the MIPs sometimes do give double digit growth depending
Who can invest? If you have a financial goal which is 2 to 3 years away
from now, you can surely consider investing in MIPs instead of investing in
schemes. These funds invest in debt instruments in such a way that at the end of the
term (tenure) of CPFs, the value of debt investment is equal to the original
investment in the fund. The equity portion aims to add to the returns of CPFs at
maturity. Do note that these funds are oriented towards protection of capital and do
not offer guaranteed returns. These funds are rated by Credit Rating Agencies like
CRISIL / ICRA.
Fixed Maturity Plans : These are also close-ended schemes and are similar to
CPFs. These funds have fixed tenure like 400 days, 1000 days etc., Units of these
close-ended funds can be purchased only during the New Fund Offer period and
money for a fixed tenure during uncertain interest rate movements, FMP is the
answer.
As discussed above, the longer the maturity of the fixed income securities, the
represented as below;
From taxation point of view, MF schemes that invest at least 65% of its fund corpus into
Mutual Fund Schemes that hold less than 65% of their portfolio in equities and
investment in a Non-Equity Mutual Fund scheme (or in a Debt Fund) that you have
held for over 3 years, it will be classified as Long Term Capital Gain. The LTCG
Short Term Capital Gains (STCG) If you make a gain / profit on your Debt fund
(or other than equity oriented schemes) that you have held for less than 36 months
(3 years), it will be treated as Short Term Capital Gain. The gains are taxed as per
your Income Tax Slab rate. (You may like reading Mutual Funds & Tax
implications)
Debt Mutual Funds offer several benefits. But most of the small investors know little
about them and prefer to invest in Fixed Deposits or Recurring Deposits. So, lets
year. The other issue is that the interest income is taxed on annual basis. TDS is not
applicable on Debt fund redemptions. Also, the tax is deferred indefinitely till you
One more advantage with debt funds is that the gains from a Debt Fund can be set
off against Short-term & Long-term capital losses (if any) from your other
investments.
If you have lump sum money to be invested in Equity oriented Fund, you can opt
for STP (Systematic Transfer Plan) from a Liquid Debt fund to an Equity fund of
Debt Funds can give better returns than your Savings Bank Account & Bank
deposits.
Safety of capital is almost the same with both the options (Debt MFs & FDs). FDs
may offer you assured returns but Debt funds can offer you higher post-tax returns.
(You may like reading Why you should avoid investing in Bank FDs/RDs for
longer periods)
If you are in 20-30 per cent tax bracket, tax-efficient debt funds can be more
Investors generally compare debt funds past returns with FD or Bank interest rates.
But, Debt Fund returns should be compared to FD rates that were prevailing at the
Debt Funds can also be considered for investment during your Retirement phase for
Systematic Withdrawals.
Debt Funds are as liquid as your Bank deposits. However, some funds can levy Exit
Load for exiting before the minimum holding period. Even a 0.5% to 1% exit load
can shave off a significant portion from your gains. So, have an eye on exit load.
If you have any financial goal(s) which is less than 5 years away, which can be met with
8% to 10% rate of return (or) when you are not comfortable with high volatility
(risk) then you can surely consider investing in Debt Funds.